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- [00:02]
Scott
Bitcoin is back at a key resistance level, arguably the most important level on the chart. $74,000 and it has been absolutely raging since the beginning of the war in Iran. Meanwhile, silver and gold down and stocks are wavering. Are we finally seeing the capital rotation into bitcoin and even crypto as a flight to safety? We're going to discuss all of that and more here on Macro Monday. Let's go. Let's. Good morning everybody and welcome to the show. As you can see I am not in my studio because this is a real background for once and I would be much better lit if I was using the fake background that we usually use. But we are going to dig in here to everything happening and man there is a lot we're waiting for James to show up but we got Dave and Mike for now. Mike, let's start at the morning meeting where I'm assuming oil, oil, oil, oil, oil.
- [01:05]
Mike
Yeah. Well we'll just start with Anna Wong. She said pointed out fourth quarter consumer spending was weak. It's not a surprise because of the shutdown. Fab CPI like to expect it to jump a little bit. So that'll keep the hawks dominate. For the hawks dominates means the hawks should dominate in the fomc. And she pointed out the policy statement expects some mention of war of the war and the upside. So basically FOMC stuck here. Ira Jersey reiterated that. He said Fed priced out cuts, fears of inflation holding back the Fed tips are priced for CPI around 2.25%. Those are five year tips. See that's about okay. Fed's happy with that 10 years closer to 2.4%. There's been breakevens for wells. Market's happy with that. Market doesn't think there'll be a durable inflation shock. He tilted over to crude oil and pointed out the forward curve. I reiterated that that's not showing up. He said if anything might be a wider spread between Brent and wti. So definitely a lot of oil there. He pointed out the auctions for 30 year last week was very strong and everything else was weak. The shorter stuff easing come out of the back of the market. His quote was 30 years. He thinks it's unlikely break above 5%. That would likely need another fed hiking cycle and 10 year still stuck in a range. He thinks it's unlikely for the two year note to get above to 3.75%. Chris Kane came on and pointed out the 14 day RSI on the S&P533 was a bit oversold oil the key level that matters is staying above 100. He says it's often not always a relative change that matters in their analysis it's staying above 100 has typically has a net WTI is a problem for crude and this key thing for the future is high levels of oil a key factor for stocks going forward. Audrey Child Freeman FX didn't say too much but point out the ECB is going to the euro is going to continue to have a problem unless there's some kind of resolution in Iran dollar wins and then I pointed out said, you know this has been the year for commodities up 20% on the year most notably because of energy. How endurable is that? And I suspect it's not. I'm looking at this year for crude oils the year similar 2008 the peak was 145 in July and by January and by December it was down at 32. I think the market seems to be pointing seeing that and I pointed out you just look at the forward curve that's a very long like just a one year out and Brent is running 76 right now. The front is 100. That's all a mountain to climb to to climb up that curve to go to higher prices and obviously it's all about the straight and I just pointed out well right now this is Trump's problem. It's Trump's should be fixing it. He closed the straight and should it should be him to fix it now. I'm sensing desperation by asking others to help. Back to you.
- [04:00]
Scott
Yeah, I was going to say he's got the coalition now. Reminds me of the coalition of the willing, you know but Trump's new coalition plan since bitcoin surging. We can discuss the bitcoin side I guess later but one catalyst away from a breakout that this is more crypto specific. But yeah, I mean it seems like he's grasping at straws right now and maybe didn't expect them to close the Straits. And I saw today as well I think it was India, Pakistan, China and Turkey are allowed to use the straits and nobody else right now Iran had created this list but I mean is oil the only thing worth discussing at this point? Because nobody has an idea what's going on there.
- [04:37]
Mike
Just the key fact that Iran has controlled the strait is a shocker. I completely did not expect the US military to allow that to happen. I'd love to hear Dave's and James views on that because that's got to stop asap. Otherwise this is the end of his legacy. This is going to Republic isn't going to crush in the midterm, just a lot trickling down from not messing this invasion up.
- [04:56]
Dave
So all I will repeat is one sentence that you need to know. We do not know what is going on. There is more disinformation here than meets the eye. We know that that insurance is why most of the boats are not going through the Straits. None of us have access to military intelligence briefings. We don't know what's going on on Carg Island. We don't know what's going on in the Straits. We don't know why and how and understand that it is. I mean, our ability to, to destroy is at this point virtually unlimited. And so the question is, is what do we destroy and how does it. And you know, there are so many theories that have been flying back and forth around this. Everything from the, that this was the intent to push China to. China is now encircling Taiwan because they think we're distracted and they want to exert pressure on us to, to not have this go. It's, It's. We just don't know. And, and to me, what's remarkable about this is the level of uncertainty outside of the government, who actually does know? And whether they're telling us the truth or not, who the hell knows? My guess is, is that they're not telling anything. I mean, Trump kind of let the mask slip yesterday, the day before reporters started asking him a question about boots on the ground and something else. And he looked at him and he basically said, why would I tell you what our plans were? And that's the point. It's absolutely true. You're at war. And intelligence and knowledge is power. And right now, the United States military and the Israeli military have all the knowledge and of us trying to figure out what the hell is going on. Don't. I mean, if you believed X, you would believe Tel Aviv is on fire, trust me. Actually, one of my, one of my wife's best friends who's, who's from Israel, well, now London, but I mean, her daughter lives in Haifa. It's, it's not. I mean, you know, what people think is happening isn't happening, and so we don't know. And what I find remarkable, and I'm really curious, James, what you think about this. What I find remarkable is we always say something that is being disproven in real time. We always say markets hate uncertainty. And I've always thought markets hate uncertainty. And yet here we are. You know, NASDAQ and S P futures are up on a morning when we have absolutely no freaking clue what's going on. I mean, I don't know how you could be more uncertain.
- [07:30]
Scott
It's strange right now because you do have some Data like the Mag 7 has slipped into correction territory. I'm assuming that's going to actually not be true by the time the markets open today. And I think I saw a story as well, I have it here that liquidity is at the lows since the tariff shock. So as much as prices are up, the plumbing isn't as good as maybe or as strong as it would be. And Dave, as you mentioned right before we went on the show, gold did slip below 5, silver was down, oil is up. So I think it's very hard to get a holistic picture of the market at all because it's so nuanced and segmented that parts of it really do hate this uncertainty.
- [08:08]
James
Yeah, can you guys hear me by the way? I'm sitting in lobby of a crummy JW Marriott.
- [08:15]
Scott
It looks nice though. You look like you're like taking of that hotel.
- [08:18]
Dave
Where are you, James?
- [08:21]
James
I'm in Palm Springs. We, my wife and I came down here to see Indian Wells, the, the tennis tournament. So it was awesome. But so, you know, uncertainty, I think that the market is actually just overconfident. That's the, that's the thing is I think, I think they're overconfident in this administration's ability to navigate the uncertainty that they have created, number one. And then you've got, you know, pockets of exuberance in like AI and associated companies. You've got pockets of inflationary, you know, pressure in which, which helps energy companies and the energy services. And then you've got a rotation, you've got a rotation that we've been watching the S and P out of some of these huge AI names into other names. And so it's kind of, it's kind of weird. It's like moving water from one side of the boat to the other side of the boat right now in my opinion. It has been interesting to watch the bonds though, Mike, and to see how they're reacting to all this because you would think that at some point you really do get a flight to safety into, into short term treasuries. But instead what you got is this, this fear of inflation that, that is, you know, it appears to be that that's a dam that is going to break here now where that, where that pushes the 10 years. The real important question, which is what you just brought up there, Scott, right So you know that if you're, if you're an investor, watch the bonds. And I think that that's going to give you the clue first. It's going to give you a clue where, where things are headed because the bond traders are, they're, they're not going to, they're not going to stomach the long term inflation like they did back in 2022. They're going to move a lot quicker this time. And so that's kind of what my eye is on. But yeah, there's uncertainty all over the market. But the answer, Dave, is I just think that it's, I mean, think of how many investors have never seen the market really go down other than a minute in 2020. If you're an investor that got in after the great financial crisis. Well, you haven't seen like last week we were talking about the, any of the 100 year events that the, of the, the dozen that we've seen in our careers, you know, and so, and I'm not saying that makes traders and investors naive. I'm just saying that they haven't gotten struck by lightning yet where the entire market just falls, just, just the entire market falls apart and, or at least without a fit like an almost immediate Fed put where they step in and stabilize. So it's interesting to say the least. But I, I feel like it's overconfidence and I feel like some of the stuff is mispriced and it, it, you know, just be careful out there.
- [11:29]
Scott
I mean, I'm far from a war expert, but the straits of Hormuz seems temporary and I think that Mike, I mean you got to assume, I know you agree, but oil being high is a result largely of that. And then the inflation expectations are also a result largely of that. And if you think that that's going to open and that oil price is going to come down, the inflation fears are also overblown.
- [11:50]
Mike
Right? Yeah, it's a classic case of this is the peak fear and uncertainty. And as we all mentioned, the question how much further can it go? And one main reason that stocks are up this morning is we didn't wake up this morning. Crude oil up 5%. It was up to 3%. Now it's actually down 3%. That's WTI, even Brent. And I think the hallmarks getting what usually happens and stuff we really wrote about in 2022 and 2008 is Crude Oil is the most significant industrial commodity in the planet and it's its own worst enemy. If you look at it the last 20 years. The highs have been around 123 times. This is the fourth actually and the lows have been around 40 or lower. So it's a random walk market. It gets near the highs, it brings on more supply, curtails that demand and causes global recessions. Right now we're in global recessionary trajectory. The straight out of home news is closed. Just the fact I said that it's already priced in the market. Natural gas already pumped up 100% in the air, it's back down. It's showing you that potential demand destruction that's happening everywhere. But this is where the rubber meets the road. Is crude oil staying above 100, even WTI, that's crushing the economy. It's going to crush consumer spending. And remember what happened. This has got a whole bunch of 9 11, 2008 and 2022 all wrapped together. There's a lot of uncertainty about the war, there's a lot of uncertainty about AI before then. What sense should that do for your average consumer? By the way honey, you probably shouldn't spend that extra year going to got a curtail spending. This is a perfect storm. So my base case for this year remains that treasury should beat everything. Right now commodities are beating everything but by the end of the year this is a setup very similar to we did in 2008. Crude oil was up to 147 and the low that year was 32. Now natural gas has already done that. It's only March. And as Dave says, we don't always know what's happening but we right now this is a major failure of the attack. US went in, tried to make the world better. Right now it's worse. Iran has control in the strait, that's just a fact. Now we blame insurance companies, it doesn't matter. The US does not have control in the strait. The powers of the world that want to import from that world don't have power control the strait. Iran does and that's got to be fixed. Until then this is a global recessionary trajectory. And once the dust settles, gold's already priced it in from last year. Crypto's already led us the way lower. I still think Treasuries will be the best performer this year. Again it's only March. We got a long year ahead of us.
- [14:17]
James
The wild thing is on that comment Mike, is that actually you've got echoes of 1980 in here, right? And so you've got this oil spiking, you've got the economy kind of slowing down and there's no way around Saying that you're not headed to stagflation here. Jobs are coming off. But the interesting part is you've got this consolidation of productivity at the top of the S and P with the AI driven new economy that we're heading into. I don't know how much effect that has over the next year or two. It appears to be happening rapidly. So. And that's, that's the part that, that, I mean, not just me, everybody's having a hard time getting handicap on, right? So. But the echoes of 1980 or the, that's the part that really worries me because that was not a fun time to live. That was awful.
- [15:15]
Dave
Well, I, I actually thought it was a great time to live, but then again, I was a freshman or that was between my freshman and sophomore years of college, which is if your four years of college aren't among the best four years of your life, then you weren't doing it right. So that's interesting. And I was studying economics and understanding and look, I hear a lot of what Mike was saying and I think it's rooted in conventional economic theory. And most economists agree with you. I personally think they're absolutely out of there. They're just wrong. For starters, let's start with oil. Oil's price going up because of a transportation and delivery function is ludicrous. Nothing changed in terms of our ability to get West Texas out of the ground, to produce it, to use it, et cetera. Here, what has changed is on the margin, people who need to get their oil from the Middle east can't. And so they're bidding against each other in order to try to get it more. America is not really impacted. This is just a windfall profit for American oil companies and American oil use. And it is a massive competitive advantage for American manufacturing versus China, India and the rest of the world. When you start asking yourself and you start pulling on that string, Mike, you end up with a administration that we've talked about many times is committed to, to re industrializing America. And this is an absolute godsend for them. If you want to know why Trump is asking for the allies and other people to help open up the Straits of Hormuz, I don't think you have to look any further than the fact that in many respects in the competition versus offshore manufacturing and China, geopolitically, this actually helps us. They'll never admit it or never say it, but it does. And it's just as I said, we don't know. But I'm not going to assume that our administration are Dumb. I think that in fact our Treasury Secretary and some of the other people, you know, our Secretary of the Interior, our Secretary of Energy, they're pretty damn smart. All very successful people. They understand what I just said. None of them are going to be allowed to say it. But just understanding, if you're watching the show and you start thinking through what does it mean? This is undeniably good for the American energy sector and American manufacturing, no matter how you want to slice it in a competitive world. And I know people don't care, but I think a lot of what the stock market's doing is people are sniffing that out and it's important to understand it that way. As far as the midterms, as far as everything else. Yeah. Look, unless there is, I don't want to say a miracle. I want to say unless things happen to work out much better than seems to be expected, it's going to be, you know, we're going to have two years of non stop impeachment and nothing happening in Washington, I. E. Gridlock. Markets do tend to like gridlock. As humans we hate it, but markets tend to like it. And so this is setting up in a world where, oh, let's put in the third, the third leg of the stool. The third leg of the stool is the one thing the government can't afford is that recession you were talking about because of the wealth effect. What will happen to the budget deficit? Budget deficit could blow out to $5 trillion if we end up with, if we continue to increase spending and we will be with the automation AI and all that other stuff. And tax receipts get crushed. I mean, 5 trillion is on the high side, but 3 to 4 is not at all crazy. And when you start seeing that, that kind of monetary debasement, what do you think is going to happen? The government is going to try to preempt that as fast as possible by James's partner's idea. And you know, look, I think Larry's big print idea is hyperbolic simply not because he's wrong, but simply because the government doesn't want to do this in big howitzers. They want, they'd rather fire off, you know, smaller shots consistently to try to push things than, you know, this, this big massive print that causes a hyperinflationary collapse. But you're going to see a lot of it. So anyway, those are the three things going on here and I think markets are kind of starting to figure that out and that's why things aren't moving. It's like the longer you go without a disaster. The more people say what the hell are we doing and where the hell are we putting our money? I mean to me it is not surprising that the worst performing asset over the last two weeks have been US Treasuries. Well, gold maybe, I don't know, it's a toss up. Both have done terribly right.
- [19:45]
Mike
Yeah.
- [19:45]
Scott
But you know what hasn't? To spark the fun conversation. Here you go. This is very strange. You guys can read it, but since the start of the US Iran war, US stocks erased 2.4 trillion, 2.5 trillion wiped out from gold and silver. But Bitcoin's up 12.5%. Crypto markets up 10, adding 240 billion. Capital rotation into crypto begins. This is a small slice of evidence, but yeah, this has been interesting. It's interesting. Can we do the flight of safety, flight to safety thing?
- [20:19]
Dave
Well, it's not safety. I mean go through coin market cap. I mean look, I look at, at the stuff that I hold and I've been. One of my holdings is up 50% in the last week. Bit Tensor because it adds the AI narrative and, and you know, the crypto narrative, Ethereum is up like 1314, XRP. Basically all of them are up. Solana up over 10. Bitcoin, you know, it's all the same. I mean, you know, you're seeing a, a very highly correlated market with a few, a few things doing better than, than other things. If you just looked at that and then and asked yourself where the hell everything else would be, I think you'd be very surprised. But one week doesn't a trend make. But it is interesting. I think it's more.
- [21:01]
Scott
Bitcoin is at the most key level I would think everyone would argue on the chart, you know, for the tech, tech analysts we've got $74,000 bitcoin and keep pushing up against it. Above that a lot of people start to get very optimistic.
- [21:14]
Dave
Yeah, you're going to get FOMO at some point soon. It's going to push through this. Look, the equilibrium price of Bitcoin is, is, is definitely pushing forward because there's just more buying than there is mining just purely from STRC for microstrategy. It's weird, but you can actually, you know, trace it. And you know, there's a Hal Finney quote that was circulating this morning on X which I think is extremely important to understanding what's happening. So Hal Finney said that the longer bitcoin goes without failing entirely, the more likely it is the scenario is higher. Right. You Know, and I don't know that I necessarily agree with that, but strc, which is the preferred top of the preferred stack for microstrategy, is a effectively getting a very high yield, dramatically higher than Treasuries on the, the risk that Bitcoin doesn't fail. That's really what it is. And you can, you could go through lots of other details. I mean, my friend, Grain of Salt, well, I know his real name but you know, that's, it is, that's his X handle has gone through and is putting together a lot of very detailed analysis on this. But the truth is it boils down to that. Well, as more and more people decide that with BlackRock and everybody else on the institutional side being in Bitcoin that it's not going to fail, then STRC becomes an interesting vehicle and the amount of money it's attracting is enough to buoy the price because it's literally more than like 50% more than the mining supply coming out every week. And so that is a big factor here as to why things have been moving in this direction. It's really a question of if it doesn't fail, give me the yield because I don't think it's going to go crazy or I can't, I'm a fixed income investor and I can't get, I can't buy it. And so that is a large part. I mean, James, I know you're all over this. I mean this is obviously a big deal.
- [23:05]
James
Yeah, it is. It's a huge part. And you said it. As more and more investors gain confidence in getting that kind of yield in a perpetual preferred that remains around par, they can stomach some volatility. If you're getting 11 and a half percent, you can stomach some volatility. The question is how much obviously, and what's the use of capital? What do you need it for? But if you can park money there for years and not worry about it because you don't care about the volatility, then you're, you know, that's an extremely attractive place to put money as an investor rather than something like private credit, which we were talking about this weekend. So, but the, you know, the question is, what you just said is how much of this buying has come straight out of that kind of product. You know, we're, we're, we're a minuscule amount in SEDA on, on Strive Asset Management. Our perpetual preferred is minuscule compared to microstrategies or strategies, but it's an important piece and it allows you to literally Arbitrage, the fiat markets, it's not even capital markets anymore. So it's interesting, but what you said was important as more and more people have the belief that Bitcoin is eventually just going to continue to reflect the, the degradation of the dollar as the dollar become, just continues to be debased. If, if you believe that then you can have confidence in something like in, in the perpetual preferred stretch or Zeta. And it just gives you that much long term confidence, which is what you need in those, in, in, you know, those instruments at this point. So, but we are, we are witnessing and getting a lot of interest in their, their financial, I hate to call them products, but instruments that are built around them that will bring down volatility, whether they're using derivatives or they're using, you know, options or, you know, or they're blending it with SOFR or whatever they're doing. But there, there are other securities that are built around these things that are coming that are going to bring down the volatility, obviously bring down the yield a little bit too. And so when that happens, then you've got another layer that's buying these things that's leading to buying the Bitcoin. And that's really interesting. And if you're not, if you, if you don't understand what I'm talking about, it's, it's a pretty simple, it's a pretty simple concept. Perpetual preferreds, SATA and Stretch, they, they sell these preferreds into the market and they take that capital, they put aside some, a little bit for, for interest payments and then they buy Bitcoin with the rest of it. And so if you've got that happening and then you've got an ETF on that buys these two things. And so for whatever they're doing and then you know that, that capital flows into the stretch and the SATA and it flows into Bitcoin. And so you know, you're going to see a lot of those products come out, a lot of those securities come out in the next, I would say next, you know, six to 12 or 18 months depending on regulatory issues around them. But that, that's my expectation. It's gonna, it's gonna just continue to fuel bitcoin buying. And that is completely like, that is nothing to do with the actual market of what, what's going on in, in the economy. That's just a function of, of that microcosm of it. And it's an interesting and powerful, but it, it's a powerful kicker. Yeah, but look at how much, look at how much it's, it's like, look at how much demand it's, it's creating. And it's, it, it, it's almost, I mean it's about as perfect of a, and I hate to say perfect because there's no, there's nothing even close to perfect in the financial world. But it's a, it's a, it's a fantastic, you know, structure for, for exactly what's. What Michael Saylor wants to do and leave Fong Li one wants to do and buying more bitcoin, it's, it's an, it's a fantastic instrument for that.
- [27:48]
Scott
Yeah, STRC is, is really starting to catch a bid and I think the zeitgeist. So you know, there was 1.2 billion they were able to buy last week, now over 1.5 billion this week. It's clearly ramping up and you can see the dashboards in real time of them just, you know, just clear, cleaning house, bringing in cash to buy Bitcoin on this, this thing.
- [28:07]
James
And like you said, because as, yeah, as the demand goes over, over par, right, as this price goes over par, they're just selling more into the market because that, that just means that the, the yield is lower than their, their dividend and so they can just continue to sell into the market and, and buy more Bitcoin. So that demand, it, it trading over par last week is like, wow, that demand is powerful. So sorry, Scott, I cut you off, but.
- [28:35]
Scott
Yeah, no, not at all. I mean that's what I was looking for. Now I want Mike's takes on all of this. So, right, there's a counter view obviously to everything that Saylor's doing and there's also a counter view to Bitcoin's move here on a shorter timeframe.
- [28:50]
Mike
Well, I guess I'm getting a bit annoyed by being the contrarian on this subject on this chat, but I'm in on our macro monies. But I'm much more relieved now that things like strategy have corrected almost 8%. Bloomberg Galaxy Crypto Index has dropped about two thirds from the peak and Bitcoin's dropped about 50% from the peak. That was the stuff that I was pointing out that I saw. Similar in gold and silver and even copper this year. Just silly, stupid, expensive. High prices are the cure and they go back down. So now what? I wish you all luck because to me this asset class is done. It's over. The biggest, best days are over and we still haven't had a worthy purge. By that I mean, just look at the performance. It's okay. We're bouncing from really good support but it's still down 20% on the year. The 200 day moving average for Bitcoin is 93,000. So maybe gets above 74,000 for a while. Maybe you know these responsive shorts get stopped out a little bit. But it's still clearly a bear market and it's completely happening with US stock market 180 day volatility still buried at an 8 year low. I stick with that same thing. You should not be buying risk assets until you have a decent discount. And now that's the stock market. Right now it's down 2% in the air. Big deal. Down 10% in the year. And right before you showed that Aum that was coming off Scott, I was just looking on the screen. There's a measure on Bloomberg I watched all the time. The peak in terms of US stock market capitalization was around $73 trillion on the year it's down 3 trillion because we went up higher and down lower. That's 10% in GDP. That's all that's going to matter to me. On a scale 1 to 10 for inflation it keeps going up, keeps the Fed out of the picture. And deflation more normal wealth deflation when it goes down maybe. I think this is the year for at least that 10%. Correction. There's your deflationary force again. It's only March. We're looking at buying dips in bitcoin after went way down again I'll say the same thing I've said for over a year now. Good luck. I suggest sticking with defensive strategies and so far that's working this year.
- [30:52]
Scott
But so the notion that bitcoin is not trading like a risk asset is one you obviously reject.
- [30:58]
Mike
Well no, right now it's trading like a bear market. A highly speculative digital asset with unlevited competitive competitors, companions, whatever name name you want to use without getting people upset but unlimited supply in that space going back down. My point is you got to purge all the excesses that is you know the, the millions of coins attract nothing are still worth billions of dollars. I stick with Dogecoin and Shibuinu and I'm sticking with that theme is they need to be purged Particularly if we have, we've had a, we've had a paradigm shift now peer to peer cash can be done on stable co phone. The rest of the world doesn't need that from bitcoin. And we switched over to the. If you're buying this asset from a You know, institutional standpoint, you're completely dependent upon and you're subject to the Trump administration, that's shifted. So to me this whole space is in a bear market. Respected and wait till proven wrong. And staying above 74,000 for a little while might be great, but it's proves it wrong. I don't know.
- [31:51]
Scott
That's my point.
- [31:52]
James
Yeah.
- [31:54]
Mike
Level I put on it again. But it's be nice if it can continue to do that.
- [31:58]
Scott
But my question is in theory, if bitcoin sitting at 125,000 again in a year, but all these altcoins still exist, are we in a bear market?
- [32:07]
Mike
Well, absolutely not. But that's a hypothetical statement. I'm sure that would be a wonderful thing. So if bitcoin's up like that and the stock market's not leading the way and gold's not going up, stuff that happened in the past, that's a wonderful sign. I'd hope we'd be able to jump me would be able to jump on board with all your bullishness then. But meantime we've had a decent correction in an asset class that I think has reached its peak and still hasn't reached. In my bottom line, it's just similar. The only difference for me is I just don't think we've reached a low price cure yet in all cryptos and bitcoin's the first.
- [32:40]
James
Well, so let's, let's back up for a second. So Scott, I think that you're more tuned into this than probably the rest of us. But I would probably, I would say that most crypto investors feel like they've been purged. I would say that the vast majority of altcoins that are not bitcoin, they have gotten absolutely demolished. And so that purge Mike, doesn't mean that they've got to go away. It means that the capital's got to evaporate from there and go somewhere else or just evaporate. It's not exactly a zero sum game.
- [33:21]
Dave
Right.
- [33:21]
Scott
So
- [33:23]
James
that's where I think we differ. It's not just that we don't believe that there are competitors to bitcoin is that the entire space has been demolished and bitcoin is what leads them.
- [33:38]
Mike
Bitcoin,
- [33:40]
James
it doesn't react to them. So it's not like all coins went down now bitcoin's going to go after them. It's the other way around. And so, and they're just, they, they trade on an extraordinarily high beta to bitcoin. You could see it Yourself, you can pull up all the correlations and, and the charts yourself in, in, in your terminal. But you know, the. So I, I differ there. And we just have to be careful how we say this for our listeners of, you know, what market we're talking about and exactly what a purge is. Because a purge to you sounds like you've got to get tens of thousands of these things just completely wiped out to zero, which it's not going to happen. And the reason it's not going to happen is not that they all have utility. And I do not argue that. I do believe some have utility. I don't know which ones win on what utility, but I do believe some of them will and will continue to have a utility that's different than Bitcoin. But the difference here is, in my belief, Mike, is that there's a reason that polymarket and Kashi is they're exploding in usage and revenue. There's a reason that we had this explosion in crypto markets, in speculative investing. It's because every single person who's out there knows that they have to get on the risk curve to catch up. They're not trying to keep up anymore. They're trying to catch up. And that's the difference, is that you've got this, this, this younger generation that can't forget about buying a house. They're trying to be able to buy a car. I mean, what's the, like, what's the lowest price you can buy for a car now? I think it's like, it's the, it's the cheapest Tesla, right? There's literally, you can't buy a car for less than $40,000 now, right? So, like, you've got this whole, you've got a whole generation out there that's like, I gotta do something to catch up. I'm not keeping up. And so I'm just going to try to buy lottery tickets everywhere. I'm going to buy thousands of lottery tickets everywhere, everywhere I can. And whether it's in Poly Market or it's in the crypto market, I'm going to move out on the risk curve. And they're being forced out there. And that's what we talk about every day, is that insidious inflationary force that people are fighting against. But I think it's more of a mentality and it's a survival instinct and less of just a casino, in my opinion.
- [36:08]
Scott
I agree with that. Go ahead.
- [36:10]
Mike
I agree with it too. And every time you say it, James, it solidifies my views that way. Overdue for a real purge. Which means so far right Now S&P 500 is down 3%. It's been up 20% three years in a row. Give us a down year, give us a test down 10%, at least a down period which stays down. And then I'll be able to make a better assessment about all these other risk assets that led the way up and have been leading the way down. That's the current trajectory. So my point is just what you said and this, I heard a lot of this in South Korea years ago is this is what is the problem is why we're so accustomed to our wealth being created and wealth creation rather from earnings but from speculating or overweight in risk assets. That's just a part of. I think we're at that stage of the purging. And I pointed out we've had deflation in China forever. Penny Note yield with 1.85. I've been wrong on that for a while. But it's all leading that way now for it to just magically recover and be wonderful. We definitely should get a relief rally. If there is a decent solution to this quagmire right now of closing the Strait despite the fact of trying to make the world a better place, that's a big problem. But for now, the key issue for me is we walked into this situation this year with the stock market near 100 year high in terms of GDP and stock market volatility. 180 day voltage still near 10 year low. I stick with that theme is we're going to see some reversion. It hasn't started yet. This is just. These are just blips on the screen so far this year in the exception of Bitcoin collapsing from high around 94 down to 60.
- [37:39]
Scott
Yeah, more pieces of evidence. Really quick, Dave, before you jump in, I just want to show. Yeah, you're up. But over 100 million Americans are currently unemployed. So it's a record 104.3 million outside the labor force. Just to kind of echo the points James made about the likely desperation. Retail's all in on oil trading, in case you guys were wondering. And we're seeing a lot of that on hyper liquid. So people are now who have no knowledge of anything, as you eloquently put, Dave, of what's actually going on out there, are speculating wildly on oil with leverage and predictive markets, as James said. And factually, we have more people outside the labor force than ever before. It's pretty ugly.
- [38:17]
Dave
Yeah, I mean look there's two points I was going to make. You just. I'll start with the second one because that's where you go, which is rotation among gamblers. And the hot ball of money. The hot ball of money got obliterated in crypto on October 10th. Someone, I can't remember who, said it would be six months before we would see a rally that, you know, that this was, you know, that. And yeah, we went lower actually in the bear, in the bear market, bottom from that than I expected. But it is not remotely surprising that here we are six months and six days later and we're seeing a crypto market which is more or less up 5% in the last day and you know, 10% in the last week, you know, since all this started. And it's broad based and its beta is actually tracking. I mean, ethereum is up 10% in the last day. Has there been a damn thing that's changed in Ethereum? No, what's changed in Ethereum is Bitcoin is up and the people who might have been selling Ethereum aren't. And so the people who are speculating, as Mike would say it, are jumping in. And so Ethereum is high beta. The same thing could be said with xrp. Although XRP is more tracking Bitcoin, it doesn't have a higher beta. Solana is of 8% in the last day. You know, these are, these are not small moves. And you know, this is, this is not a bear market rally. This is a. Is it safe? Is it safe? Is it safe? You come out, oh, it's not raining anymore, let's go. These things don't generally, don't generally end in a day unless there's some massive news. So expecting that to change, I just, it's not likely to. I mean, I look at doge at 10 cents. I mean, doge at 10 cents is, is up, you know, 6% overnight. Right. But it's not 20 cents where it was, you know, not all that long ago. And you know, the people who own it don't feel like selling it. And it's just, it's a, it's, there's speculation, it's just, there's a lot of speculation. But speculation isn't a one day phenomena. You know, you rarely see, oops, we lost Scott. You rarely see speculation not go in waves of weeks or months. And you know, we saw this with silver, we've seen this with everything. And so, you know, if you're investing in this market, you have to be aware of it. I tend to agree with Mike that a lot of this stuff will fail and fail hard. But that doesn't change the fundamentals underneath bitcoin or those tokens that people believe will actually win. Except for the fact that, and we're going to talk about this on Crypto Town Hall, Scott, is people could get excited about various tokens and use cases. Except for it seems to be. And this is already happening, and we saw this in the Internet bubble, that when a token's ecosystem is demonstrably successful, those tokens tend to underperform. Why? Because the hype is no longer there. Now it's already happening. And people say, oh, okay, well, where's the beef? And in the reality is it doesn't. There is no beef. You know, as long as there's just a story, people can hype it up. And we see this, and we see this in stocks, by the way, all the time. This is not unique.
- [41:26]
Scott
It's the best scene from Silicon Valley where he says, you know, you don't want to have any revenue.
- [41:30]
Dave
That's right. And we talk about that. But that is happening. And so there's a lot of that. So you have all that cross current and the other big thing, and I keep hearing it and I keep making the point is the denominator, all this stuff in dollars which are being devalued, you know, you could look at, at when you look at corporate profits in the S P versus gdp, they're both, they've moved in tandem. But part of the reason for that is because dollars are worth less and prices are higher. Right. And so companies have higher revenue. But you know, okay, you know, if you price it in gold, you get very different answers. Now gold is down so over the last couple of weeks. So now we're back at 5,000, which we all know is my view of an equilibrium price. Now, although that equilibrium will continue to go higher as we print more dollars. But you have to look at it that way. And so these static charts treating. Unless you have a commodity like oil, where Mike's analysis is totally right, because technology has consistently brought down the price in nominal terms of how to produce it. Right. What does it cost us to produce a barrel of oil? On the margin now 40 something, $55
- [42:38]
Mike
a barrel and the margin less. You're right.
- [42:41]
Dave
Yeah, well, okay, yeah, fine.
- [42:42]
Mike
On the margin, 5 is the number. It was a number we use for break even.
- [42:45]
Dave
Right, that's break even. What will it be in a year? My guess is 52.
- [42:50]
Mike
I don't know. Let's keeps heading that way, something's got to. Yeah, it's heading away.
- [42:54]
Dave
But that is not true of what you call risk assets. It's the opposite, as a matter of fact. The equilibrium for a risk asset when you're continuing to print $2 trillion a year in the United States and the rest of it is higher. And that's the difference. Oils deflation, natural deflationary forces from technology is overwhelming. This is the whole Jeff Booth argument, right? The pieces of the economy where technology is deflationary is being offset by monetary inflation. And that is not a uniform concept. It is not going to be the same for everything. Some things are going to have more deflation. Things like producing software. Producing software is now dramatically, if you know what software to produce is dramatically cheaper than it used to be. And by. Within a year, the entire notion of outsourced coding is gone, Literally gone. An entire industry that was one of the biggest industries in all of India, gone. Because you won't need it. Because you could have, you know, an AI bot, if you tell it what to build, it will be able to build it better than people sitting in cubicles in. In coding centers. Coding is a job.
- [44:07]
James
Which is why. Right. Which is why when, when you, when you think about deficits and what you said, Mike, and earlier, what you said, Dave, about deficits blowing out, it's as if you don't even need a hard recession to get to the three, $4 trillion deficits. Why is that? Well, because as more and more people are unemployed, the benefits and the cost of those benefits rise, and they continue to rise. And, and the government is going to be driven to run more and more deficits, higher deficits, and just to keep the economy going. And that in and of itself is. It debases the dollar, it's inflationary. And so that's where we're headed. And I don't see the deficits coming down under $2 trillion. I just don't see it. If we hit 1.8, fine, but I don't see them coming down to 1.1 trillion. I don't see a balanced budget anytime soon. And so that is the force that is structurally right now. That's the structure we have, and that is going to continue. To your point, Dave, about Jeff Booth's theory, which is what convinced me on Bitcoin years and years ago, is that inflationary force of debasement of currency is being used to battle the deflationary force of technology advancement. And who could have expected this advancement of AI to happen so rapidly in the last three to Six months. If you're not paying attention to it and you're listening to the show and you don't know what we're talking about, please go read about all of the industries that are being disrupted right now by AI. It's not hyperbole, it's reality. And you're seeing people laid off in large swaths, not just like a couple people here and there, tens of thousands of people being laid off left and right because of AI. So it's not, and I'm not, I'm not like trying to say, look, we're having, the whole market's going to crack. No, that's not what I'm saying. But I'm saying be aware that, that it is being disrupted at a much faster pace than people expected. Now how long that continues and how big of an impact on the economy it has remains to be seen. But I know just from anecdotal evidence on top of what we're seeing on the reports and the unemployment reports is that kids coming out of college are having a real hard time finding jobs right now out of good colleges. It's really hard to find a low level job right now because I would
- [46:51]
Scott
have said, yeah, yeah, I would have said. I, I actually did say when people would joke about what are your kids going to do, right? My kids are 10 and 6, so I would joke, you know, they're not going to drive cars, they're not going to go to college. Maybe I'll just teach them to code. I would have said that six months ago. Like I'll just teach them to code and then they'll have a job. Now you can't even teach them to code to get a job Now I guess you got to teach them to vibe code with prompts but that'll be irrelevant in six months because itself.
- [47:16]
Dave
So yeah, I mean I, look I, I don't want to throw gasoline on the fire. Actually I like throwing gasoline on the fire.
- [47:22]
Mike
So let's do it.
- [47:24]
Dave
You know, when you consider the fact that Tesla is, is discontinuing the S and the X specifically to turn over their factory production lines to Optimus robots and you see, and look, I have full self driving on my old Y. I'm actually trade, well not trading it in, that's a different, different story. Tesla's annoying about that. But I'm actually going to the new Y with the higher, you know, the better CPU, etc. And the full self driving. By the way, the new Y has Groq implemented in it so effectively you get it. You can you get in your car, you, you, you say hello to your, you say hello to the car and you tell it where you want to go and it takes you there. And, and literally the only thing right for now you have to sit there with your hands near the wheel and you have to be staring at the road to make sure that it doesn't do anything stupid. But the truth is it works really well. Now imagine that same brain inside Optimus robots doing repetitive factory tasks. You think there's going to be a repetitive factory job left? Nope. You know, it's like you want to know how American manufacturing is going to beat the Chinese? It's going to beat the Chinese by it. Well, maybe the Chinese are doing this also. It's going to. What will happen? Costs in manufacturing will drop. Why? Because you won't need people doing menial, stupid jobs that require, that are pure repetition. You know, all of those are going to go poof.
- [48:41]
James
And yeah, think about this, think about this. On top of that, Dave, is that you've got like one of the, one of the, the mainstays that everybody said could never be replaced in the, in the transportation sector was the, it was the last mile. The last mile you got to have a person come up to your door and put the package down to your door. And now you've got drones doing this, dropping them in yards. It's mind boggling. So even that's being disrupted now. That's a little bit different than straight AI, but it's technology related and AI is involved and it's going to just accelerate that final mile being obliterated. So now all those delivery drivers that you see that have taken up that second job, they're driving Uber, they're doing Uber Eats and they're doing Last Mile of Amazon. You know, those are going to go away too. And so it's just the effects of this are compounding. And not to be a doomsdayer, because I'm not. I'm actually quite optimistic on everything. It's just things are changing rapidly. And so like you just said, you can't, you don't want to be studying computer science in college right now. And if you are, then you got, you got to pick up something else along with it. Because it seems to me that we're headed back towards the days of the most important degree to get out of college is a critical thinking degree. And so to be able to critically think and move and learn and move on your feet quickly to whatever industry you're getting into that you can Be additive almost immediately because you can critically think.
- [50:19]
Dave
Except for colleges don't teach that anymore. You know, that's the problem. I mean like my alma mater, Northwestern, it's, it's, it's so sad how bad it is now. But you know, when I went to school I was basically, it was whatever your viewpoint on anything, it was, let's make sure we get a diverse intellectual diversity. There's no intellectual diversity there.
- [50:40]
James
That is a problem.
- [50:41]
Dave
Everything is all about liberal dogma. And I'm sorry, you know, you can have a great conversation. I mean I have, I do it all. It can't be.
- [50:50]
James
But you can't be, you can't be attacked by 98 of the class because you have a different view and.
- [50:56]
Mike
Right.
- [50:56]
James
And that's, that's where we are in, in the vast majority of the colleges. And that's, that is a problem.
- [51:01]
Dave
It is, the university system is, is fubar. Literally fubarred. It needs a reset and AI actually provides the ability to do it. But people are going to have to do it. I mean if I had a test. Yeah, I mean thinking about something very different.
- [51:16]
James
To your point, Dave, when I was, when I was, when I was at Yale, 1993, I was a political science major and yeah, they leaned left but we had like strong political discourse in the, in the conversations. We literally would debate them in small sections with eight or ten people and half the class would be conservative and half the class would be, you know, liberal and they would just debate these things back and forth, forth. Now if you're a conservative sitting in there, it's an ambush. Like you're, you're destroyed. Like it's just, you can't have that voice anymore. It's, and that's interesting and it's a problem, you know, it's not healthy in by any means.
- [51:57]
Scott
Are our AI agents gonna have political opinions already?
- [52:03]
James
That's a prop. That's part of the problem too. They already do. They do.
- [52:06]
Dave
And, and, and you can get it if you talk with ChatGPT and Grok and ask similar questions. You get different answers once you get into these topics. But we're way off the field. What does matter at all of this is there's no escaping, there's no escaping the reality that when you have a debt fueled economy, if we didn't have a debt fueled economy, I wouldn't be saying this, but in a debt fueled economy, every single politicians in both parties, their entirety of their, their, their, their job is to kick the can down the road. And what does that Mean that means more debt, that means with less and less activity. But you're going to see universal basic income of some sort. You need it. We already sort of have it, right? In terms of the number of people who are paying taxes versus getting paid. You know, it's, it's, it's a pretty strict, some pretty jarring numbers. That number is going to increase and at a certain point, you know, it's just, that's where that cycle of monetary debasement comes in. It's, it's inevitable because you know, you're. We are a long way from Star Trek. We are a long way from, you know, the, the world where everybody just, just decides they want to help out the collective and work together etc, and money doesn't matter, you know. But we, we literally are sitting. If you're trying to understand what the forces that we're talking about, deflation on the production of stuff, deflation on the provision of services and at the same time inflation of the money supply in order to have the money to pay for people to live a lifestyle. And that's where we're at. And you could talk about it as much as you want, but when you get into a war, which we're in now, it's going to make it very, very obvious. I mean wars do one thing very, very well. Destroy that. Cause you need to need to rebuild and the money has to come from someone. That's the one thing that's true. And whether. Who knows what's been destroyed and what hasn't because you know, we don't really know. But we do know that there's enormous stresses being put on the system. And there's only one, they only have one answer. There's only one fire bucket, right? And it's to turn on the monetary printing hose. And, and that's, that's the thing. I mean I, I don't see any way around it.
- [54:19]
Mike
Can I comment on that? Because that's consensus. But we've done it. That's why I could say I love Larry's book. He's just should have published in 2019. We did get the biggest money pump in history to 2021. And then I point out, just look at that bitcoin to S&P 500 ratio. Right now it's about 11. I mean I was getting really worried when it got to 11. 18 last year was just too high. But it first print traded 11 in 2021. Biggest money pump in history. And this is a problem. I think your average risk manager know who's Professionally educated, understands risk management, which we all do, is you see an asset here. Now it's fifth year in a row of underperforming the S and the beta s and P500 with externally much higher volatility. And it's high correlation. That's a negative, negative net. At least in broad commodities you can say, yeah, at least they're negatively correlated to stock market historically. This year is a good example. But to me that's what's really happening. Then we pointed all these deflationary forces. We've had three great years in the stock market. We're overdue. And also now the risk is AI might increase deflation, maybe risk my job. To me, this is the big one kicking in. It's barely started and bitcoin just led the way down. We've had this little spike. Now we've got a catalyst. Just like remember 911, some of us were really bearish stocks. And that was all overlaid bonds and long gold. And once that was when I just remember right before 9 11, when 911 hit. Yeah, my bonds hurt for a day and then they were the right place to be because it switched the psychology. To me, this event just switched the global psychology. And we walked into it with risk assets, most of the stock market, the sore thumb on the world. That still hasn't changed. Gold was a little bit too expensive. That's locked off a little bit. Bitcoin was a little cheap. That's bounced a little bit now looking forward. That's why to me this is look to sell rallies and risk assets.
- [56:09]
James
Let's, let's pull on that thread a little bit. So let's say we do have a recession. We do get our sell off in the S P. We do have, you know, deflationary pressures. We do have the, the deficits are widening because of that. Like, pull on that thread. And I know you say that they learned their lesson. I hear you. I, I want to believe that they learned their lesson, but it's not to me, it's not about them learning their lesson. It's about they're cornered. There's no way out. It's Lynn Alden's. Literally there is nothing stops his train. Like, please walk through that and tell me how we're going to get on the other side of that type of event where we do have a recession. We do have a steep drawdown in stocks at 10 or 20%. You know what, what happens on the other side of that, that's the issue. I just can't believe that we're not going to print. I don't believe that we're not going to print.
- [57:08]
Mike
You know, I didn't say we're not going to print. I gave you examples already. We have 300% debt to GDP in China, money supply running two times what it is in US massive deflationary forces. Their 10 year yields 1.85%. We saw this in Japan almost the last 30 years. That's my point, James. That's what's different. I completely agree with that. But also we see what's the number one one subject in elections now on the back of this big money pump and inflating assets. And it's all those rich people own stocks that your average voter is not appreciating anymore.
- [57:40]
Scott
Did you know by the way, did you say all those rich people own stock? This shocked me. I just saw this today and I just want to mention it before we go. 68% of American millionaires own crypto. That was a crazy stat to me. Does that surprise anyone else?
- [57:54]
Mike
That surprises surprise me.
- [57:55]
Scott
Yeah, maybe it's, I, I mean it's being reported widely. Maybe it's inaccurate.
- [58:00]
Dave
Well, I don't think 68 of them own Bitcoin. Maybe they own stable things.
- [58:04]
Mike
I, I don't know. I mean what was the source?
- [58:09]
Scott
That was on Yahoo Finance, but I can search where it's coming.
- [58:13]
Mike
I suspect it's from a show. Oh really? Okay, well this might be neutral.
- [58:18]
Scott
Well, yeah, I don't want to go
- [58:20]
Dave
into a full on rebuttal because I think that, you know, we'll have a week to see it. Let's see what goes on next week. But I think that you are looking at a, a situation where we are going to have, we might very well normalize. Meaning, you know, if you, you know, a debt to GDP of 300% is not crazy to see because with unfunded liabilities, we're almost there. Now in that scenario there's only, the only answer is going to be when. The reason Mike might be right on us treasuries being an okay bet is if we really push into yield curve control because we can't afford to have the long, the long end. So that wanting to push the long end down to 3% is clearly what they want. The question is, is is outside of manipulation in one form or another. I don't see how it happens. Not saying it won't happen. I have no position. I would never short it because you know, you don't short a government when they have that power. I just asked the Question. Chinese yield at 1.85% with that debt to GDP. Why? My guess is the Chinese government buying their own bonds, although they'll never tell us that. We don't know. We. We do know for sure. That's what's happened in Japan. And their, their yields are higher now because they realize they can't do it eventually there's a certain point.
- [59:31]
Scott
So they did it for decades, right?
- [59:33]
Dave
Decades.
- [59:34]
James
Decades.
- [59:35]
Dave
That's right.
- [59:35]
Mike
Any tips?
- [59:36]
Dave
Yeah, that's right. And you know, that's the playbook. Is that going to be what's going to happen? My guess, probably yes. I mean, we'll see. You know, it really, it's all depending. But that, that's the one thought of the day that, you know, on that I, I don't want to go through the rest of it now because we're already up against time and you're on vacation. So you should go back to the jungle and enjoy it.
- [59:57]
Scott
Thank you. Great conversation, guys. Yeah, we'll be here, of course next week. I'll be here all week even though I'm traveling. But otherwise, I guess we'll see what's going to happen here. With Bitcoin at 74, 000. I do think it's interesting that Ethereum's up almost 10% in the last 24 hours with Bitcoin up 4.5%. That's not something we usually see in these situations. So I think if we get a break on Bitcoin above 74, we might see some actual altcoin movement for 12 minutes before it collapses. So I guess we'll. We'll see what happens there. Mike's beloved Shiba Inu and Dogecoin might even go up. All right, guys, that's all we got for you. We'll see you soon. Thanks. Bye. That's dope.